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HMRC internal manual

Enquiry Manual

Contract settlements: expected offer: means - realisation of assets and loans

The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.

You must explain to the taxpayer that

  • they must do everything in their power to pay the debt
  • they are expected to realise all available assets, including surplus business assets or cash, to the extent that this will not affect continuation of their business
  • if this does not meet the full amount due to HMRC, they should try to raise loans on the security of their assets that can-not be easily realised, such as their

    • residence
    • business premises, or
    • life assurance policies.

If they are unsuccessful they will need to provide evidence, in the form of letters of application to prospective lenders and their replies that they have tried to raise capital in this way, unless they are clearly not creditworthy.

The approach you must take regarding the taxpayer’s residence is covered at EM6217.

Where a taxpayer’s spouse, civil partner or domestic partner has funds to assist you should ask whether they will be made available.

Once you have established the taxpayer’s means, and alternatives such as an instalment arrangement have been ruled out, you may need to consider whether it is appropriate to charge penalties. Any such decision will be based on the person’s ability to pay, see EM5213.

If the taxpayer is not prepared to co-operate of you cannot obtain an acceptable offer, you must

  • settle the case by the formal route
  • give Debt Management and Banking (DMB) a report of all the information you have about the taxpayer’s income, expenditure, assets and liabilities and include a completed SEES form MS134
  • explain the situation to the taxpayer and agent accordingly.

Enforcement and Insolvency Service will consider bankruptcy proceedings where there are valid assessments giving rise to collectible tax liabilities.